In Keynesian economics

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, underemployment equilibrium refers to a situation with a persistent shortfall relative to full employment

Full employment

In macroeconomics, full employment is a condition of the national economy, where all or nearly all persons willing and able to work at the prevailing wages and working conditions are able to do so....

 and potential output

Potential output

In economics, potential output refers to the highest level of real Gross Domestic Product output that can be sustained over the long term. The existence of a limit is due to natural and institutional constraints...

 so that unemployment

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

 is higher than at the NAIRU

NAIRU

In monetarist economics, particularly the work of Milton Friedman, on which also worked Lucas Papademos and Franco Modigliani in 1975,NAIRU is an acronym for Non-Accelerating Inflation Rate of Unemployment, and refers to a level of unemployment below which inflation rises.It is widely used in...

 or the "natural" rate of unemployment

Natural rate of unemployment

The natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics...

. This situation is not seen as solvable via laissez-faire

Laissez-faire

In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

polices of "letting nature take its course" (price adjustment). Instead, fiscal policy

Fiscal policy

In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....

 (i.e., deficit spending

Deficit spending

Deficit spending is the amount by which a government, private company, or individual's spending exceeds income over a particular period of time, also called simply "deficit," or "budget deficit," the opposite of budget surplus....

) or monetary policy

Monetary policy

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...

 is needed to "prime the pump" or "jump-start the economy" to abolish cyclical unemployment and the "GDP gap."